South African investment laws - foreign investors with treaty protection may challenge proposed expropriation of land

​In July 2018, we published an e-alert setting out key changes to South African investment laws. The e-alert highlighted that as a result of a review of its investment laws, the South African government has terminated several Bilateral Investment Treaties (BITs) to which it was a party and then sought to "substitute" the treaty protections with domestic legislation, which ultimately led to the passing of the Protection of Investment Act, 2015 (the Act) in July 2018.

Although the stated purpose of the Act is to protect foreign investors in South Africa, overall, the protections offered in the Act are substantially diminished when compared to the substantive standards contained in international treaties. However, the Act has no direct effect on any protections which foreign investors enjoy under international treaties which have either not been cancelled or contain “sunset clauses”; those protections are still governed by the international instruments from which they arise.

Last week, the Department of Trade and Industry's (DTI) Deputy Director-General of International Trade and Economic Development, Xavier Carrim, briefed Parliament's Ad Hoc Committee to Initiate and Introduce Legislation amending Section 25 of Constitution on the possible impact of land expropriation without compensation on foreign investors from countries that have bilateral investment treaties in place with South Africa.

​ Mr Carrim noted that if the land was expropriated from a foreign investor who was based in a country that had a bilateral investment treaty in place with South Africa, the investor could invoke a legal challenge against the government under the treaty, if they believed the compensation amount was not fair.  The DTI also indicated its understanding that international treaties trump the law of the land and government cannot invoke internal law as a justification not to meet international treaty obligations.

Termination of a number of South Africa's bilateral investment treaties commenced in 2013, but the treaties terminated each contain a “sunset clause”. Following formal termination, already existing investments were protected under those bilateral investment treaties for a period of time varying from 10 - 20 years.

Mr Carrim confirmed Government has formally terminated 12 agreements, including those with European Union countries and Argentina and intends to deal with four of its remaining treaties concluded with African countries – Nigeria, Zimbabwe, Mauritius and Senegal – through the African Continental Free Trade Agreement. It is still in discussions regarding its agreements with China and Russia. Two agreements – with Cuba and South Korea, are awaiting permission from Parliament to be terminated.

In addition to bilateral investment treaties, investors could be covered under international law by regional treaties, such as the Southern African Development Community’s Finance and Investment Protocol.

The Committee confirmed that Parliament intends to finalise an amendment to section 25 of the Constitution at the end of March. There is likely to be extensive public engagement on this matter.

In our previous e-alert we set out some key features of the Act which any investor should be aware of. These can be viewed here.